GST Benefits for Start-ups and Small Businesses in India

The article outlines how the Goods and Services Tax (GST) benefits start-ups and small businesses in India by simplifying tax compliance and reducing the burden. It highlights thresholds, composition schemes, exemptions, and streamlined online processes that support their growth.

Introduction

The implementation of the Goods and Service Tax (GST) marked a crucial moment in India’s tax landscape, fundamentally transforming tax management across the country. It was introduced with the slogan of ‘One Nation One Tax’ to ease compliance procedures for businesses, especially for start-ups and small businesses struggling with India’s complex tax system. This blog post aims to dissect the myriad benefits that GST offers to start-ups and small businesses in India, illuminating how it catalyzes their financial and operational streamlining.

Amidst these discussions, it's crucial to recognize the role of staying informed through authoritative sources. GST books, replete with the latest updates, interpretations, and case studies, emerge as indispensable resources for anyone keen on navigating the tax landscape efficiently. These books not only elucidate the nuances of GST and its implications for small businesses but also keep stakeholders abreast of the latest tax-related updates, benefits, and regulatory changes, ensuring informed decision-making and compliance. As we delve into the specific advantages of GST for small enterprises and start-ups, let's also acknowledge the value of these comprehensive guides in enriching our understanding and application of tax laws in India.

1. Threshold Limit for registration under GST

Section 22 of the Central Goods and Service Tax, 2017 (‘CGST Act’) provides the threshold for GST registration.

GST registration becomes mandatory for any business only if the annual turnover of the taxpayer exceeds Rs 20 lakh (Rs.10 lakh for the States of Manipur, Mizoram, Nagaland, and Tripura).

However, there is an additional benefit of a threshold limit of Rs 40 lakhs for those taxpayers exclusively engaged in the intra-state supply of goods. It’s important to note that this limit does not apply in cases where compulsory registration is required under the Act or if a person is engaged in the supply of specified goods or making inter-state supply or making intra-state supply in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Telangana, Tripura, Uttarakhand.

Notably, if a person earns interest/discount income from deposits, loans, advances, etc. he would still be treated as exclusively engaged in the supply of goods. In other words, they can avail the threshold limit of Rs. 40 lakhs.

Small service providers making inter-state supplies not liable for mandatory registration.

Though, under GST law, obtaining registration is mandatory where the supplier is making inter-state supply. However, the persons making inter-state supplies of taxable services and having an aggregate turnover upto Rs. 20/10 lakhs in a financial year are exempted from the mandatory registration under section 24 of the CGST Act.

2. Availability of composition scheme - reducing the compliance burden

The composition scheme simplifies GST compliance for small taxpayers. This scheme is optional and available to the eligible persons, whose aggregate turnover in the preceding year does not exceed Rs 1.5 crores or Rs. 75 lakhs if the person is registered in the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Telangana, Tripura, Uttarakhand.

Taxpayers under the Composition Scheme are required to pay tax at a fixed rate on their turnover, instead of the regular GST rates applicable to various goods and services. Further, they cannot claim the input tax credit (ITC) on the purchases.

Threshold in case of special composition scheme for a service provider.

Generally, the composition scheme is not available to suppliers of services except for those suppliers engaged in providing restaurant/catering services. However, the Finance Act 2019 introduced a special composition scheme for other suppliers of services. This scheme is available to all those registered persons not covered under the general composition scheme, with an aggregating turnover in the preceding financial year not exceeding Rs.50 lakhs.

Eligible persons are entitled to supply of services upto specified quantum.

The persons engaged in the supply of services are not eligible for the composition scheme except where the persons are engaged in the restaurant/catering services or the persons covered under the special composition scheme. However, the second proviso to section 10(1) of the CGST Act provides an exception where the person supplying services being of higher of the following amounts that would be;

• 10% of turnover in a State or Union territory in the preceding year;
• Rs 5 lakhs.

Furthermore, the GST law provides that the value of interest/discount on deposits, loans or advances would not be considered for determining the above limits.

Suppliers of goods under the composition scheme will eligible to conduct supply through E-Commerce Operators (ECOs).

Generally, suppliers of goods or services under the composition scheme are not allowed to supply through ECOs. However, the Government through Notification No. 28/2023- Central Tax, dated 31-07-2022 provided that with effect from 01-10-2023 suppliers of goods under the composition scheme will be eligible to affect supply through ECOs.

Compliance requirements for the suppliers who are opting for a composition scheme

They are required to file quarterly returns instead of monthly returns which reduces the compliance burden. Furthermore, since the aggregate turnover of the persons who opt for the composition scheme would always remain below Rs. 2 crores, there has never been a requirement to furnish an Annual Return till date.

3. Threshold limit for Compliances under GST

3.1. Option of Quarterly Compliance to small businesses instead of monthly

Rule 59 of the CGST Rules provides that a taxpayer with a turnover upto Rs. 5 crores may furnish the outward statement on a quarterly basis however, the tax is required to be paid on a monthly basis. This provisions help to reduce the compliance costs for the small taxpayer.

3.2. Form GSTR-9 not compulsory for turnover upto Rs 2 crores.

Section 44 of the CGST Act read along with Rule 80 of the CGST Rules, mandates that a person is required to furnish the Annual Return if their aggregate turnover exceeds the turnover Rs. 2 crores.

Furthermore, the government has made the filing of GSTR-9 optional for taxpayers whose turnover is upto Rs. 2 Crores for the relevant financial year.

3.3. Form GSTR-9C not mandatory for tunover upto Rs. 5 crores

The GST law requires every registered person whose aggregate turnover exceeds Rs 5 crores to furnish a self-certified reconciliation statement in Form GSTR-9C. Therefore, a taxpayer with a turnover up to Rs. 5 crores is not required to furnish a reconciliation statement.

4. Benefit of an exemption in case of service provided by an incubatee

Notification No 12/2017- Central Tax (Rate) provides the exemption in case service provided by an incubatee up to a total turnover of fifty lakh rupees in a financial year subject to the following conditions namely-

• the total turnover had not exceeded fifty lakh rupees during the preceding financial year;
• a period of three years has not lapsed from the date of entering into an agreement as an incubatee.

5. Other Points

5.1.ECO shall be liable to pay GST under section 9(5)

Section 9(5) empowers the Government to notify the certain categories of ‘services’ on which the GST would be required to be paid by the ECO instead of the actual supplier of the services if such service is supplied through it. This provision reduces the compliance burden for the taxpayers who provide the services through ECOs.

5.2.Streamlined Compliance with online processes.

GST registration, return filing, and other procedures are conducted online under GST law. This facilitates easy and efficient compliance, saving significant time for taxpayers.

Conclusion

In conclusion, introducing GST in India has been a pivotal reform, especially benefiting start-ups and small businesses by simplifying the tax framework and reducing the compliance burden. The GST regime introduces various registration thresholds, offers composition schemes to lessen the compliance load, and provides benefits like quarterly compliance options for small businesses, thus fostering a conducive environment for their growth.

Furthermore, specific provisions such as exemptions for services provided by incubators and streamlined online processes underscore the government's intent to support small-scale industries in their developmental journey. For businesses or tax professionals looking to stay abreast of such tax-related updates and benefits, Taxmann Bookstore emerges as a commendable resource. Offering a wealth of publications and materials, it is an essential guide for businesses navigating the complexities of GST and other tax obligations, ensuring they remain informed and compliant.

Important Links

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